Spectrum fees not to hurt firms much

Even though incumbent telecom service providers will have to pay Rs 14,557 crore to the government for excess spectrum held by them as recommended by Telecom Regulatory Authority of India (TRAI), it may not hurt their bottomlines too much.

India’s largest operator Bharti Airtel will have to pay Rs 3,498 crore, while Vodafone will have to pay Rs 2,849 crore as one-time entry fee.

“This is not going to have any significant impact on the balance sheet of these companies as this payout will be amortised over balance licence period, which is up to 10 years,” said B.K. Syngal, former CMD of Tata Communications, formerly VSNL.

“In the case of Bharti it may cause a decrease in the operating margins by about 200-300 basis points, which is insignificant.” The company’s March 2010 quarter margins stood at 34 per cent.

Bharti refused to comment.

“On the balance sheet of companies like Bharti and Vodafone, 3G spectrum auction, for which the price has touch over $3 billion (Rs 13,500 crore), will have much larger impact,” said Jaideep Ghosh, executive director, KPMG. “Additional pay out due to excess spectrum could be offset by the proposed reduction in licence fee over a period of time.”

TRAI has recommended reducing licence fee from 6-10 per cent for various circles to a flat 6 per cent by 2013-14.

“Currently, operators use excess spectrum as they do not want to invest in infrastructure,” a DoT official said. “The more the spectrum, less a company needs to invest less on infrastructure.”

Idea Cellular today criticised the recommendations saying they do not allow for level terms or help the industry move from “control administered spectrum pricing mechanism to a market-based mechanism”. The company will have to pay Rs 1,066 crore for the excess spectrum it holds.

“We welcome the move that there is a one-time price being levied for the spectrum held free of cost for so long by incumbents, though this does not compensate for the advantage this hoarding has brought to them over the years,” a Tata Teleservices official said.